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With regard to the following sentence, by Paul A. Eisenstein: “If you look at the industry, the whole general direction is to create larger and larger companies that can gain economies of scale”, think of an answer to the following questions:

·      Which might be sources of economies of scale in this industry? The company has to take advantage from the expansion of an industry, in this case, the technology that is discovered every day. If the technology advances, the production process is going to be more efficient; but the company has to discover and implement this new technology in its production process, which sometimes can be a demanding investment. The firm might be able to lower average costs by buying the inputs required for the production process in big quantity, wholesale. This way, the variable cost will be less, so that the same price of the final product will have a bigger margin. Acquiring more skilled or experienced workers is also key in economies of scale. If a company has more qualified workers, they are going to work better and faster, so that the quality of the products will be higher and the whole production process will be more efficient.

·      Can you find an example of the evidence cited by the author (i.e. are there any companies that have become larger in recent times?)? The famous company Wal-Mart is one of the largest suppliers of groceries in US. This company works with “everyday low prices” strategy because everything is very cheap. The company’s strategy is related to the cost. They sell a big volume of products but for a low margin. They make money with economies of scale, selling so many products that the margin costs decrease so much, that the company is very profitable. Furthermore, if a company takes advantage of the economies of scale, the more this company sells, the more this company grows. In consequence, the company is going to be bigger and bigger. The diversification of this company is key currently, because it had accomplish its objective of being a big company using lower prices than its competitors in the market.

Can you think of any sources of economies of scope as a result of this agreement? Internal technology improvement is often used by the companies in order to achieve economies of scale. A technological advancement might drastically change the production process. If the merger is going to mix technologies of the companies, they are going to be able to produce more products or in a faster way and they will reduce the marginal costs, or they are going to be more efficient in less time.

The tech companies attract capital and talent, so the bigger the company is, the more capital and talent that it will attract. In this case, with the merger, the company is bigger so that it is going to attract more of these and it can use it in order to gain economies of scope. The merger accelerates this company into being in a good position for the future, says the text. The merger, as the text says, introduces new products easier when there is an established brand the desired image. The companies have to remain competitive in traditional products segments, but they also have to deal with the push of CASE (Connected, Autonomous, Shared and Electric). They do not know clearly what the consumer really wants or if these new technologies will generate real profit. If they are merged, it is easier to discover everything.

Thanks to the agreement, both companies can share information, goods and other things. As we can see, ideas from one project can help another project. If the companies merge, they have more technology and capital. With all this, when they start a project in this partnership, some ideas can be used in the next project. They can also buy cheaper between them because they can share inputs among them in order to reduce costs of the inputs. Because of the merger, the companies will be able to have more qualified and experienced workers because of the same thing, they can share between them these workers.

Do you think that antitrust authorities should care about this merger? It is common sense that it has to be a regulation on topics like this one. Although the market has to develop itself, there has to be a controlled way to protect clients, people and society from the abusive actions that sometimes these mergers make. It happens the same with the very necessary goods. If the market just acts for itself without any regulation, it may happen that abusive behaviours are going to take place with the prices of these products; with mergers can happen the same. Companies need freedom to merge among themselves because sometimes it is healthy for the general market.

The article mentions lots of times that without the merger could not have been possible to gain economies of scale or just implement new technology. A lot of times strength comes the numbers; two companies together are more valuable than two separate companies. However, it is also true that States have to care about this and, at least, be aware of the situation in case something is becoming wrong or abusing. To sum up, I do think that antitrust authorities should care about this merger, of course; but they should lose the big picture and start taking the whole freedom from the companies because sometimes the cure is worse than the disease.

In the text, it is mentioned that they have to get approved by various governments. This can be a demanding activity, because some governments are more suspicious about the mergers than others. However, what is important is that companies have to be free in the market, but up to a point.

Mc Duffie suggests at some point that an alliance might be more appealing than full mergers. How do you see it? Explain some advantages and disadvantages of both forms of collaboration. In the alliance, the companies want to work between themselves and help each other on a contractual basis, but not as a partnership. From the point of view of the society in general, it can be more convincing for them to see that there is an alliance between two companies for a specific period of time and for a specific activity. It is more reliable for them to see the situation like this instead of seeing a big merger that maybe it is not well defined why there are merging.

If you are a real client of a company and suddenly this company mergers with some competitors that you do not really like, would not you feel cautious about what it is going to happen? You may lose some trust in your company. However, with just an alliance, you may not see a danger in the situation. I guess people can sometimes associate alliance with a short-term situation and merger with a long-term situation. It is common sense that it does not have to be like that, but we sometimes see it this way.

The merger kind of excludes one company during the process. The acquisition is very common, and people do not really like this because they think that the “big” company is taking advantage of the “small” one and they say that this is unfair for the “small” ones. They do not really see that there is probably a very good advantage or good point also to this “small” company. They are acting in order to be together bigger than separated, this is not a “bad” thing to one company, it is good for both. Why would a company do a merger in order to be worse? However, when an alliance takes place, people see it, as I have said, like a short-term activity and in a future both or all the companies implicated are still going to be themselves and they are going to preserve their name, policy, etc.

From the point of view of economics and scale economies, however, I understand that probably a merger will be more successful than a mere alliance. Everything will be stronger and more determined with this kind of partnership than just a regular contract.  Both companies will be more implicated with the cause if a merger takes places. If there is just a contract, it is more difficult to find the big picture of both companies; it will take place the “easy path” of just not breaking the contract. In a merger, the companies have to find synergies, so they are going to be more efficient in this merger than in a regular alliance. Although it is very difficult to implement a merger because they are competitors and have negative perceptions of each other and lots of them have failed, in a long-term it is going to be more efficient to the company. As the text says, the companies have to push aside their previous perception of the other and jump into the hot tub together. Even considering that this is going to be demanding and tough, it does worth it.